For several years, the financial sector has been undergoing a series of changes, driven by advances in technology, which are improving banking products and services as well as customer relations. This is the so-called digital transformation of the financial institutions based on innovative and disruptive technologies such as blockchain. Customers are already starting to reap the benefits.

One of these technologies is the so-called blockchain, the technology underlying bitcoin, which makes secure financial transactions with no intermediary possible.

The digital currency that more theories has generated since its appearance and its rapid expansion has caused such a stir that finding specific information about bitcoins is often a mission impossible. In this article we explain in a simple and understandable way how this currency that is revolutionizing Internet payments works.

For financial institutions, the use of this technology promises a better optimization of business processes thanks to the exchange of secure data among different companies.

Using blockchain technology in this process not only reduces banks’ costs but could also offer greater transparency, a crucial element in auditing and compliance.

However it’s important to note that blockchain technology will not replace financial institutions, but complement and improve their services in the digital age.

It is only a matter of time before financial institutions massively adopt blockchain technology. The sector is closely following the evolution of this technology and financial innovation is reaching unimaginable heights. In fact, the world’s largest banks, including BBVA, are founding member of R3, a financial consortium (comprised of over 50 institutions) that studies blockchain, its secure use and international standards for this technology.

Is blockchain really the philosopher’s stone that will transform the fintech world? In order to answer this question, financial sector experts met in the last edition of Revolution Banking 2016 This article outlines the key lessons of the discussion that took place and which can help to better understand why blockchain technology is in vogue and its role in the future.

Eight financial services in the spotlight

Shares, bonds and treasury bills are managed by investment banks and brokers. Blockchain technology can guarantee the security of these transactions through peer-to-peer instruments (P2P).

Authentication and security. Banks and regulators are currently responsible for verifying the identity of a transaction and deciding who can access the system. Blockchain technology guarantees security with no need for other agents to intervene.

Venture capital and investment. Venture capital investments are very common in the entrepreneurial world. The investment comes from different actors, which makes the process arduous and complex. With blockchain, this can be automated to become more transparent and secure thanks to P2P technology.

This refers to the systematic registration and notification of financial transactions. Accounting is one the financial areas that is least connected with the digitization of the sector, but adopting blockchain would make auditing firms more transparent and facilitate access to different companies’ movements.

Smart contracts. They are computer programs that run automatically on blockchain to implement the terms of a contract as soon as the conditions stipulated by both parties are fulfilled. Blockchain can be used to automate and accelerate costly manual processes.

Stock trading is the exchange of financial instruments for investment or speculation purposes, among others. Blockchain technology cuts the transaction settlement times from days or weeks to minutes or even seconds. This could generate greater opportunities for access to different banking services.

Blockchain uses derivatives based on reputation which are defined by the social and economic capital and the digital behavior of companies or individuals. This technology can guarantee the solvency of those receiving financing and reduce what is known as “counterparty risk” – the risk that the company or individual involved in the negotiations will be declared insolvent before the end of the agreement.

Payment systems. Credit card payment networks and money transfer services are designed to solve the problem of doubled costs, ensuring that no euro is spent twice as it moves from one person to another. Blockchain would guarantee this not only for money, but for any financial asset being transferred, such as bonds, thus helping to democratize economic growth.

Experts say that blockchain will also transform banking supervision and regulation. Financial institutions could use this technology to develop algorithms that identify patterns of abuse related to fraud and money laundering, for example. This will enhance the banks’ ability to identify suspicious customers.

Bitcoin and the blockchain protocol have achieved a system that enables the exchange of value between two parties unknown to each other in a swift and effective way, without the need for intermediaries. Despite its immaturity and the many challenges it involves, the financial industry has set its sights on this technology, that can offer a great opportunity for generating new banking services that are more agile, less expensive and more favorable for its customers.
Macarena Peña, Business Development manager of BBVA’s New Digital Businesses area, is responsible for seeking the opportunities related to blockchain. Peña explains in this interview how this technology works and the challenges it poses for the banking sector. In her opinion, there are only two things preventing banks from beginning to offer Bitcoin services: regulation and real customer demand.

“Everledger is a digital, global ledger that tracks and protects items of value… and it’s on the blockchain.” Nearly seven months have passed since Everledger CEO and founder Leanne Kemp used this pitch to explain Everledger at the BBVA Open Talent 2015 Europe finals. After winning the European title of BBVA’s startup contest, Everledger has continued its hard work and achieved several major accomplishments, including moving into new areas like fine art and ethical supply chain finance – with more on the way. [Just as of last week, Everledger was included in the prestigious ranking The FinTech 50 of 2016]

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